How to sell a scale-up business | CapEQ

Roadmap to exit – Scaling Up Your Business For Sale

Steve Murphy

Steve Murphy


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Roadmap to exit – Scaling Up Your Business For Sale

Recent studies have shown a few trends that should perhaps worry CEOs. Firstly, two-thirds of the fastest-growing companies fail. You might think that reaching hypergrowth status puts you on the inevitable path to success. If only it were that easy.

Other research suggests steady-growth businesses tend to do better in the long-run than their faster-growing counterparts.

To grow fast, milk the market, and sell at the top requires smart thinking, tunnel vision, and determination.

The pace of change naturally leads to kneejerk decisions, bad hires, and declining customer service – which long-term strategic planning can help to mitigate.

Above all, you need to remain sustainable and not dependent on the next funding round for cashflow.

And you need to be ready to hand over the business to a new owner if things get too much or you start feeling out of your depth.

What counts as a scale-up?

An entrepreneurial venture with proven product-market fit, but now requires investment in new people, offices and marketing to achieve 20% yoy growth.

This requires rapid organisational change and skillset management as the business moves from say 50 employees to 400 in a short space of time.

Why sell a scale-up business?

What circumstances would lead you to step back from your business? You may anticipate reaching the extent of your capabilities or ambitions (entrepreneurial skills are not the same as those needed in ongoing management and leadership roles: starters are rarely finishers).

You may know you are going to need an injection of funds for another growth phase.

Or perhaps you think the next few years will exhaust your interest, so you are likely to want to move on to another challenge.

Whatever your outline ideas, thinking ahead like this can help determine your strategy for future and how you run your organisation in the intervening years. It can help you develop and shape the business so that if you do decide to sell, whatever the timeframe, you will be in a good place to attract a buyer sufficiently keen, capable and funded to take it to the next level.

Getting your business exit-readyScale-Up a business CEO focus areas

‘Growing to sell’ over the long term imposes no constraints – you can always change your mind or the plan. Nor is there a downside if you start several years out. You’ll either structure and run the business in a way that maximises its planned sale value, or operate at peak efficiency as you continue to grow it.

Either way, your state of readiness enables you to be opportunistic, selling if and when the market, business and your state of mind align.

[Further reading: When Should I Sell My Business?]

Ruts and entropy

Why then doesn’t every business exist in this ideal state?

Simply, real life gets in the way. Just keeping the business chugging along takes up a huge amount of time and energy.

Most entrepreneurs are not trained as leaders or managers. Equally, mature businesses face the twin issues of ruts and entropy.

Ruts happen naturally, as the wheels of daily business create easy-to-follow natural grooves. People become comfortable through repetition – and risk averse. Entropy then erodes the energy and purity of vision which characterised the founding of the business.

These are natural forces. As long as the business remains profitable, there is little incentive to shake things up. Change is hard, uncomfortable and (unless an existential crisis arises) easily postponed. Meanwhile, skills erode, investment reduces and knowledge goes unrenewed.

This state of comfort and inertia explains why most mature businesses flatline –becoming nowhere near as fit for sale as they should be.

The power of potential – how to assess acquirer opportunities

So how do we convert stasis into sellable propositions?

Here we outline the ABC aspects of strategic, tactical and day to day business that a five-year plan might address, making any organisation more appealing to a purchaser.

A) Identify your USP for acquirers and investors

  1. Start with a mission and vision, setting out your purpose (why you exist, not what you do). These are not words on a page: they are daily reference points
  2. Map and communicate your long-term direction and destination, based on this mission and vision, sharing it with all of your stakeholders
  3. Define your scarcity value you have – or wish to have. Build your future around maximising this value.

B) Plan ahead for when sales plateau

  1. Determine your readiness for growth. This goes far beyond your aspirations to extract further value from what you have in place already.
      • Are your growth plans limited or limitless?
      • If you grow through massive customer acquisition, will this add value – or should you specialise around more targeted HNW opportunities?
      • Have you researched the future market?
      • Do you have the IT, marketing and sales plans/teams in place to handle growth?
  2. As you grow, you will win and retain customers and clients. These are the people who pay the bills, so you are unlikely to ask yourself whether they are the right customers. Taking time to sit back and assess your customer profile is good practice at any time. Determine which 25% return most of your profits, growth, synergies and productivity. Then look at the remaining group (at least the bottom quartile, but ideally the full 75% generating less value) to determine which should be retained, and which low-value/high-maintenance customers should be replaced over time by organisations closer to the profile of top quartile. The beauty of a five-year plan is that you can manage this process organically and profitably, without any sudden shocks to the business.
  3. If you hold substantial stock, consider a likely purchaser’s priorities and preferences, then revisit your stock turn strategy to see if your processes and IT are appropriate, resilient, modern and effective. As you near a sale, you might choose to free up warehouse space/costs and replace assets with cash.

C) Implement operational efficiency

  1. Look at your contracts, to ensure they are updated, fit for purpose, accessible and easily transferable.
  2. Think about how well-protected the business is. Would you buy it under the current arrangements – or do you need to raise your game on insurance, warranties and crisis readiness planning in the years ahead?
  3. Consider your financial status and financial team. Are your management accounts, management information and management reporting all accurate and up-to-date? Are they presented impressively?
  4. Is your reporting generated by smart systems and backed by transferable processes and clear documentation/handbooks?
  5. What are you planning to do about office space and WFH? Is infrastructure in place to back up your team and match increased capabilities and reach?
  6. Are you working with the right people, within the right business culture?
  7. Are these people who could transfer to a new buyer or accept a fundamental change of approach – or merely a group of fairly talented individuals who are unresponsive to change and stuck in their respective grooves?
  8. Do you have a trusted group of suppliers and professional advisors in place?
  9. Take an objective look at your operations and determine if you’re run by leaders or managers.
  10. Or is the business all about you? If so, can you devolve responsibilities to improve things both now and in terms of a transitional team when selling?

Further reading: 10 ways to reduce business owner dependency

Making this work is far harder than compiling a list. It means disruption, but also improvement. The road leads to a far better destination and (almost certainly) a more rewarding business exit when the time comes.

So make time – and refresh your plans. And make contact with an advisor who can guide and accompany you – every step of the way.





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